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IN RE LEHIGH & HUDSON RIVER RY. CO.

UNITED STATES DISTRICT COURT, SOUTHERN DISTRICT OF NEW YORK


July 1, 1974

In the Matter of The LEHIGH AND HUDSON RIVER RAILWAY COMPANY, Debtor

The opinion of the court was delivered by: WARD

The Lehigh and Hudson River Railway Company ('the railroad') is presently in reorganization proceedings before this Court pursuant to § 77 of the Bankruptcy Act, 11 U.S.C. § 205 (' § 77'). On April 24, 1974, 374 F.Supp. 4, the Court determined, as required by § 207(b) of the Regional Rail Reorganization Act of 1973, Pub.L. 93-236, 45 U.S.C. §§ 743, 744 ('the Act') that the railroad is not independently reorganizable on an income basis under § 77 within a reasonable time, and that the public interest would be served by permitting it to participate under the Act.

The question now before this Court is whether the Act provides a process which is fiar and equitable to the estate of the railroad. If the Act does not provide such a process, the Court is required by § 207(b) to dismiss the reorganization proceeding. If the Act does provide such a process, the Court must order that the railroad proceed with reorganization pursuant to its provisions, by transferring at least some of its rail properties to the Consolidated Rail Corporation ('Conrail'). The assets to be transferred will be those chosen for inclusion in the final system plan. Under the Act, assets not so chosen may be sold or the States may subsidize those services they deem essential.

A hearing was held June 6, 1974, after notice to all parties in the § 77 proceeding and to all creditors of the railroad. The Penn Central Transportation Company ('Penn Central'), the Central Railroad of New Jersey ('CNJ'), and the Commonwealth of Pennsylvania, owners and creditors of the railroad, opposed inclusion as provided by the Act. The Trustee of the railroad, the United States of America, the United States Railway Association ('the Association'), and the States of New York, New Jersey and Connecticut supported the railroad's participation under the Act.

 Subsequent to the hearing, a three-judge court sitting in the Eastern District of Pennsylvania held that §§ 304(f) and 303 of the Act are unconstitutional; and that because the effect of Section 207(b) precludes a form of liquidation under Section 77 of the Bankruptcy Act, it is constitutionally refective.

 For the reasons set forth in that decision, which are equally applicable to this railroad, this Court determines that the Act does not provide a process of reorganization which is fair and equitable to the estate of the railroad. Unless and until the decision of the three-judge court and the resulting order dated June 25, 1974 *fn1" are reversed and vacated, this Court retains jurisdiction over the proceedings for reorganization under § 77.

 In the interim, the Trustee is directed to apply to the Secretary of Transportation for such assistance as is necessary for the continued provision of essential services by the railroad.

 It is so ordered.


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